In South Korea and Nigeria, per-capita GDP appears to have been somewhat similar in the 1950s. Both countries were incredibly poor. Today, according to the World Bank, South Korea has the 11th largest economy in the world, with Canada being 10th, while the majority of Nigerians live on less than $2 a day.
Why? What happened? How can one country have created so much wealth and become so rich, while the other remains so poor?
South Korea’s newfound wealth is not attributable to resources. The nation is relatively resource poor. Nigeria, by contrast, is resource rich. In addition to being one of the world’s top oil countries, Nigeria has natural gas, tin, iron ore, coal, and more. Yet the World Bank says that South Korea’s GDP per capita stood at CAD$34,500 in 2016, while Nigeria’s was about CAD$2,729.
The widely different financial outcomes in these two countries are the result of economic policies and political decisions. Think of it this way: if you want to grow mushrooms, you don’t focus on the actual mushrooms. Instead, like the Edmonton-area farmer who grows vast quantities of the tasty delights, you create an environment that mushrooms like, and they grow as a natural consequence.
Similarly, a key responsibility for any government, regardless of political stripe, is to cultivate policies that facilitate the creation of wealth. It’s the only way to better provide individuals with an enhanced economic capacity, thereby caring for themselves, their families, and others.
Good economic policy requires a genuine understanding of the wealth creation process and a willingness on the part of government to uphold the rule of law, respect people’s property, including personal income and private finances, and permit individuals, families, and businesses to pursue their own economic self-interest. In simple terms, it means low taxes, security of property, minimal interference from governments including the wage scale, and trusted laws that apply equally to everyone – no cronyism or favours for the government’s friends.
In a supply-driven recession such as we have, where the oil industry and others are struggling to find a way to invest capital profitably, our province needs a more deliberate focus on creating a better investment climate. This includes a fiscally responsible and disciplined government that balances its budget and restrains its desire for higher taxes and more regulation. Such a climate not only attracts investment, it encourages investors to stay. Governments seen as intrusive – raising taxes, hiking regulations, and needlessly interfering – create disincentives and encourage people to invest elsewhere or move away.
Historically, Alberta governments have done well at attracting investors, which have employed vast numbers of Albertans. Some years, provincial resource royalties have been three to 14 times what our neighbouring provinces collected in sales tax. These previous Alberta governments knew how to create the right investment climate. The problem was that the ensuing funds could be mismanaged. One newly-elected premier increased government spending in a single year by more than 20 per cent.
Today, the current Alberta government is failing on both these counts. It has spoken out against our resource sector and appointed individuals who’ve done the same to key positions, thereby denigrating the investment climate. At the same time, it has knowingly set the province on a more reckless and dangerous fiscal path than any previous administration ever considered, steering us toward a $70-$80 billion debt by 2020.